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Tip-Pooling Rules Spark Stinging 9th Circ. Dissent

PORTLAND, Ore. (CN) — The Ninth Circuit's refusal to hold an en banc rehearing on federal tip-pooling regulations prompted a scathing dissent Tuesday from 10 judges.

With U.S. Circuit Judge Diarmuid O'Scannlain leading the charge, the 25-page opinion labels the majority "reckless" for advancing an "unsupported and indefensible idea that federal agencies can regulate any class of activity that Congress has not 'unambiguously and categorically protected' through positive law."

The case stems from Section 203(m) of the Fair Labor Standards Act, the law originally meant to govern employers that paid workers less than the hourly minimum wage because they take what it known as a "tip credit."

This failed to take into account, however, those employers that pay tipped workers at least the federal minimum wage and makes them pool their tips with nontipped co-workers.

The Ninth Circuit upheld such tip pooling in the 2010 case Cumbie v. Woody Woo Inc. because it found that Section 203(m) was silent about such employers.

Seeking to fill this void, the U.S. Department of Labor took action later that year — extending the tip-pool restrictions of Section 203(m) to all employers, not just those at take a tip credit.

New challenges soon sprouted. While trade groups for restaurants in the Pacific Northwest filed suit in Oregon, Las Vegas casino mogul Steve Wynn went to court in Nevada.

Both won injunctions based on Cumbie, prompting the Ninth Circuit to consolidate the cases on appeal last year.

The Ninth Circuit panel reversed 2-1 for the Labor Department this past February.

"Whereas the restaurants, casinos, and the district courts equate this silence concerning employers who do not take a tip credit to 'repudiation' of future regulation of such employers, we decline to make that great leap without more persuasive evidence," U.S. Circuit Judge Harry Pregerson wrote for the majority.

Pregerson argued that Congress hardly intended to permanently let employers "do whatever they wish with their employees' tips" just because they don't take tip credits.

Wynn and the restaurant groups wanted the Ninth Circuit to rehear the case en banc, but the maneuver failed Tuesday to get the votes — prompting the O'Scannlain dissent joined by nine other judges.

Calling the panel majority's conclusion "startling," O'Scannlain said the disputed section of the FLSA, 203(m) "clearly and unambiguously permits employers who forgo a tip credit to arrange their tip-pooling affairs however they see fit."

"The FLSA cannot serve as a source of authority to prohibit activities it does not cover, just as a statute reading 'No dogs in the park' cannot be said to authorize a Parks Department to ban birds as well," the dissent states

O'Scannlain balked that the Labor Department does not have the authority to "enlarge the statute beyond the point where Congress decided to stop regulating."

"Such notion is completely out of step with the most basic principles of administrative law, if not the rule of law itself," the dissent states.

Appointed by President Ronald Reagan in 1986, O'Scannlain is known for his judicially conservative views on the notably liberal Ninth Circuit.

"Our job is to protect the rights that are given us under the Constitution," the judge told Portland Monthly magazine earlier this year. "It's following the text of the Constitution and the statutes, and resisting the temptation to read into language and thoughts that really aren't there."

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